Virtual payment cards revolutionise spending management

Compared to credit transfers, direct debits and cryptocurrencies, payment cards remain a widespread and widely used means of payment in Europe and the eurozone. In 2019, there were 572 million payment cards in circulation in Europe, which means 1.7 cards per capita (ECB 2020). Payment cards can be used to make purchases in physical shops or online shops and to withdraw money from ATMs.

In recent years, however, virtual payment cards and methods have also been increasingly entering the market. According to a study by the European Central Bank in December 2020, one in four online payments in the eurozone are now made using electronic payment solutions. A trend that has been further accelerated by the coronavirus pandemic.

What are payment cards?

A payment card can be used to make cashless payments in shops or online. Four different players can usually be identified for a classic card payment. Firstly, there are the cardholders who use the card for payment. For example, they use the card to pay for their weekly shop at the supermarket or a T-shirt at the boutique without cash.

The second actor in card payment transactions is the payee. They accept the card as a means of payment for the purchase and thus participate in cashless payment transactions.

In addition to these two direct players in a transaction, other stakeholders are also involved in a card payment. Firstly, the card-issuing institution and secondly, the contractual partners of the payee, who are responsible for accepting and settling the payment.

If all these parties are involved in the payment transaction, it is often referred to as a four-party system. However, there are also payment systems that manage with just two parties. One example of this system is customer cards or bonus cards in the retail sector. With these cards, the function of the card issuer and the acceptance point is assumed by the same natural or legal person.

In summary, payment cards are cards that authorise their holders to participate in the cashless payment process of affiliated contracting companies.

In contrast to other cashless payment methods, various payment methods compete with payment cards. The globally known and recognised procedures include American Express, Master Card and Visa. These methods generally go hand in hand with a credit card that is valid worldwide and settles transactions with a delay. In addition to the globally recognised methods, there are also payment methods that are locally limited in their validity. These include the giro card, which is still widely used in Germany and is the successor to the former EC card. This card can be used to make payments or withdraw cash from ATMs in Germany without any problems.

Debit or credit cards - what's the difference?

Debit and credit cards fall under payment cards and enable cardholders to make cashless payments. However, a key difference between these two card types lies in the billing method.

Debit cards include payment cards such as traditional bank cards and giro cards. The debit card does not grant cardholders any credit and settles transactions directly. It is therefore not possible to pay with a debit card without a credit balance on the corresponding account. Some banks penalise overdrafts with overdraft interest - paying without a credit balance on the current account is therefore an expensive affair. To exaggerate, this means that the account balance of a debit card determines the card limit.

The situation is different with credit cards. Credit cards grant their holders credit in accordance with the card's credit limit. This credit can be used to make numerous purchases and transactions with the credit card over the course of a month. These purchases are then settled in a credit card statement at the end of the month. This service is not free and cardholders pay an annual fee for the delayed settlement.

How can P-Cards be categorised among payment cards?

A purchasing card, also known as a P-card or order card, is a commercial payment card. Other cards with similar functions are, for example, the corporate card, fleet card or travel centre card.

Companies can use P Cards to pay for smaller business expenses or small requirements that occur frequently in day-to-day business. These cards are useful for ordering office equipment or other low-value goods and services. Each cost centre can order what they need directly and a collective invoice is issued to the company at the end of the month. Once payment has been received, the card providers of purchasing cards forward the order confirmation to the supplier, who then delivers the order to the company. Purchasing cards are still relatively unknown in Germany, whereas they have been used successfully in English-speaking countries for several years.

Purchasing cards have the advantage that they can be easily integrated into existing ordering processes. In addition, administrative costs can be drastically reduced, especially for cost centre requirements with unproblematic products.

Order cards are a good lever for speeding up a company's procure-to-pay processes and reducing transaction costs. This is because the transaction costs are often higher than the actual order value or value of the goods, especially for low-value goods.

How virtual payment cards work

Virtual payment cards are suitable for specific transactions and purchases that traditional payment cards cannot offer. You can obtain a virtual payment card from payment providers or banks. This can then be used for online and offline payments depending on the programming.

As its name suggests, the virtual payment card is virtual and therefore does not physically exist. When the card is requested, the card issuer creates a specific data package for the payment card. This package contains the name of the cardholder, the credit card number, an expiry date and a security code (CVV).

Virtual credit cards can be configured and issued for individual transactions. In this case, they have a predefined expiry date and can no longer be used for payment after expiry.

Various advantages of virtual payment cards for companies

Virtual payment cards give companies improved control over the transactions carried out with these cards. Depending on the programming, certain retailers can be blocked or upper transaction limits can be set for virtual payment cards. From the outset, employees can only make purchases from authorised online shops and only up to the predefined maximum limit.

In addition, virtual cards can be deactivated directly by the company in the banking software or by the employee in the app in the event of theft. Data theft is rather rare with virtual cards; it requires more effort than classic card theft from a wallet. Physical cards are much easier to steal than the electronic data record of a virtual payment card.

Virtual payment cards, which in the best case are integrated directly into the company's ERP system using credit card software, give companies better budget control. Specific spending guidelines for the virtual payment cards prevent individual departments or employees from spending more money than agreed. If the virtual card is a credit card, employees also benefit from all the advantages of a traditional company credit card. Money can be easily withdrawn abroad and expenses can be paid directly in the foreign currency without having to worry about conversion rates or having enough cash.

Transparency and cost control are just some of the many advantages

Another advantage of virtual payment cards is that they can be created by the company without a great deal of administrative effort and in line with requirements. This is particularly advantageous if employees are only travelling abroad sporadically and need a company card for a specific use.

An unlimited number of virtual cards can be created quickly and deactivated just as quickly. Those responsible only need to communicate the data record and the virtual card can be used for payment. This considerably reduces the waiting time between card application and receipt of the payment card.

By switching to virtual payment cards, companies therefore have a versatile and scalable payment method. In addition, employees no longer have to advance business expenses out of their own pockets and can use the digital company card directly for payment. Automated payment card processes are desirable for everyone involved in a company.

The right integration with IT systems in financial management

When companies decide in favour of virtual payment cards, it is also worth taking a look at automation and IT integration. With the right connection, companies can achieve significant economies of scale and process optimisation. In addition, the autonomy of individual employees and departments increases, as does cost transparency for the finance department.

Credit card software is constantly evolving and offers companies increasingly sophisticated functional packages. Displaying the turnover of all the company's payment cards on one platform and managing the cards on this platform provides companies with improved financial control and transparency:

• They can track spending and transactions across the entire organisation on one central platform.
• Checking and authorising individual purchases is much easier for managers and financial officers thanks to the bundling of information.
• Payment card transactions can be tracked right back to the authorisation of the payment card.

In the end, all hierarchical levels benefit from this transparency in holistically integrated financial software.

Digital archiving makes paper receipts superfluous!

One advantage of integrated payment cards is that paper receipts become superfluous and proofs are digitally saved and archived directly. With Expensya, virtual payment cards can be created directly from the admin account and companies benefit from a native app to manage their business expenses. With just a few clicks, employees can create invoices and authorise purchases on the go. In Expensya, companies can define their expense policy in just a few steps and automate compliance with expense rules.

Thanks to integrated expense management software such as Expensya, paper receipts can be digitised and archived directly in the cloud. Digital and legally compliant archiving in the cloud also reduces the risk of data loss.

A SaaS solution such as Expensya increases transparency and productivity and offers companies the best of automation for their expense management thanks to numerous functions. Employees can easily use virtual payment cards on business trips and for online purchases and benefit from ease of use, high payment security, accelerated processes and reduced risk of fraud.